Schedule a consultation

Retirement Division, Forensic Accounting and Business Valuation Blog

  • Home
    Home This is where you can find all the blog posts throughout the site.
  • Categories
    Categories Displays a list of categories from this blog.
  • Tags
    Tags Displays a list of tags that has been used in the blog.
  • Bloggers
    Bloggers Search for your favorite blogger from this site.
  • Team Blogs
    Team Blogs Find your favorite team blogs here.
  • Login
Recent blog posts

Every divorce attorney recognizes the added complexity of a case when retirement assets must be divided. Mention the word QDRO and even the most seasoned veteran may be filled with a sense of foreboding. Imagine the confusion when a client tries to understand these important documents.

 

However, QDROs do not need to be difficult. A bit of education and trusting a QDRO expert to help you navigate the potentially rocky shores can help avoid some of these most common QDRO mistakes.

 

Incorrectly Naming the Plan

...
Continue reading
Hits: 25 0 Comments

Posted by on in Common QDRO Mistakes

While the most common use of a Qualified Domestic Relations Order is to divide retirement accounts between two divorcing spouses, there are other uses for these handy document, as well.

 

Spousal Support

A QDRO can also be used to enforce payments of maintenance or alimony to an alternate payee. In these cases, the QDRO distribution is considered taxable to the alternate payee.

 

...
Continue reading
Hits: 38 0 Comments

One of the most common questions I get asked about QDROs is whether the value of the pension that was built up before the marriage is subject to division during divorce. Like most things in life, the answer I give is…it depends.

 

The first question to ask is whether the retirement accounts will be divided at all in the divorce. Sometimes, each spouse has a relatively similar account balance in their own names. Or one spouse wants to keep the house (or some other valuable marital asset), and the value can be offset against the other spouse’s retirement account. Or some other variable. In short, not every divorce automatically means that retirement accounts will be divided.


But if they do need to be split to ensure an equitable division of the marital estate, then whether retirement benefits earned before marriage will be included or excluded from a present value calculation will depend on how the state where the divorce is pending treats marital property.

 

...
Continue reading
Hits: 121 0 Comments

Rejection. Nobody likes it. Especially when it comes to a court order. Yet, rejection is a painful – yet avoidable - reality in the world of Qualified Domestic Relations Orders (QDRO). But why?

 

Every qualified retirement plan has a plan administrator who owes a fiduciary duty to the plan and its participants. Part of the plan administrator’s duties is handling Qualified Domestic Relations Order (QDRO) requests when they are submitted. It is the administrator’s duty to review the proposed QDRO to ensure it meets with the terms of the plan itself.

 

On some occasions, a QDRO does not fulfill the requirements of the plan or attempts to assign rights not granted under the plan. Regardless of the reasons, if a plan administrator determines that the QDRO does not pass muster, ERISA laws require certain actions to be taken.

...
Continue reading
Hits: 53 0 Comments

In order to be a valid and binding Qualified Domestic Relations Order (QDRO), the final document requires three signatures – those of each spouse plus the court. However, in some cases, the spouse who owns the retirement account believes that by not voluntarily signing the QDRO, they can avoid the actual retirement account division.

 

While these situations are not common, it does put additional strain on the spouse who wants to finalize the QDRO and receive their money from the account. When a recalcitrant spouse refuses to sign, it may require another trip in front of the judge.

 

All QDROs arise from either a negotiated agreement or previous court order. Refusing to sign the QDRO is a violation of a court order, and equates to contempt of court. Often, the threat of a contempt action is enough to get the reluctant spouse to sign off. However, sometimes your family law attorney will need to file a motion to bring the matter formally before the court.

...
Continue reading
Hits: 65 0 Comments

At least when a qualified domestic relations order (QDRO) is involved.

 

In a recent case in Indiana, the state court of appeals ruled that the divorce court retained jurisdiction over a matter, even after one party died, because there were still outstanding issues within the decree itself that needed to be resolved.

 

In 2012, the court issued a divorce decree for Judith and Allen Edwards, with Judith receiving one-half of her ex-husband’s pension and retirement benefits. But the decree failed to assign responsibility for preparing the requisite QDRO to effectuate the transfer.

...
Continue reading
Hits: 66 0 Comments

If you are a federal employee or retiree going through a divorce, you may discover that your Thrift Savings Plan (TSP) will need to be divided as part of the property division. While there is no federal law that allows for any automatic award to a former spouse, the divorce court will retain jurisdiction to split it as part of the divorce proceedings.

 

One document you must be familiar with in the event a TSP must be divided is a Retirement Benefits Court Order (RBCO). That is the legal document that will be required to accomplish the actual division. The RBCO may exist in the form of a Qualified Domestic Relations Order (QDRO) or might be a different document altogether.

 

But since the rules governing the split of TSPs (and other government retirement accounts) are quite precise, it is important that the documentation meets the stringent criteria for an RBCO. Especially since the court will freeze your TSP account from withdrawals and loans while the divorce action is pending.

...
Continue reading
Hits: 77 0 Comments

When prospective clients who need a Qualified Domestic Relations Order approach me to prepare the paperwork for them, one of the first questions they ask is whether they need an attorney to help them with this part of the process.

 

Of course that depends on the nature of their divorce and where they are in the process in general. I put together this helpful vlog to answer this common question. I hope you find it helpful.

 

...
Continue reading
Hits: 84 0 Comments

Most people think of the number 65 when thinking about retirement age. But in the world of Qualified Domestic Relations Orders (QDRO), the actual number that represents “earliest retirement age” can vary. And is very important.

 

Why? Because the definition of “earliest retirement age” within the QDRO itself, governs the exact date when an alternate payee may receive standard payments under the QDRO.

 

Federal law defines “earliest retirement age” as the earlier of two dates:

...
Continue reading
Hits: 35 0 Comments

When it comes to splitting up retirement accounts as part of a divorce, the path of least resistance isn’t always the safest. Take the case of Jeremy Ray Summers v. Commission, T.C. Memo 2017-125.

As part of a divorce, the petitioner sought to simplify the division of the couple’s IRA account. The couple agreed to split the account 50/50. But instead of utilizing any sort of legal judgment (in this case a Transfer Incident to Divorce), the petitioner simply withdrew all the funds from his IRA and gave his wife half.

Unfortunately, this action also triggered IRS scrutiny and the assessment of a 10% early withdrawal penalty. The petitioner objected, on the grounds that the withdrawal was directly related to the divorce, per IRC §72(t)(2)(C) for distributions made to an alternate payee via a qualified domestic relations order (QDRO).

The tax court disagreed, citing two facts. One, that the distribution went directly to the petitioner rather than his wife as the alternate payee. And two, even though the petitioner had good intentions, he failed to strictly adhere to the tax code when he skipped the court order or decree for the division.

This case makes clear that when dividing retirement accounts of any kind during or after divorce, using a QDRO (or similar document for accounts like IRAs) is the only way to avoid assessment of penalties.

Hits: 143 0 Comments

Posted by on in Common QDRO Mistakes

If you work with Qualified Domestic Relations Orders (QDROs) on a regular basis, you may think that creating a simple template for these legal documents is a great way to streamline the preparation process.

 

However, using a QDRO template (or worse, the form QDRO provided by the plan administrator), can result in omitting critical language that is fact dependent on your circumstances.  By all means, create a basic template to obtain federally required information, like:

 

a)    The name and last known mailing addresses of the plan participant and the alternate payee(s),

...
Continue reading
Hits: 82 0 Comments

If you’re new to the world of Qualified Domestic Relations Orders (QDRO), you probably believe that the most important entity involved in issuing a valid QDRO is the judge. Unfortunately, you’d be wrong.

 

While, of course, you need the court’s signature to issue a valid legal document (which a QDRO is), there is one individual who wields far more power than the judge’s pen. Who is this mysterious individual?

The plan administrator.

 

Under federal U.S. law, the administrator of a retirement plan is also the entity responsible for determining the validity of a QDRO. While this may seem like a lot of unfettered authority, it is important to understand why this authority exists. (It is also important to know that any final decision made by a plan administrator is reviewable in federal court.)

...
Continue reading
Hits: 99 0 Comments

In many longer-term divorces, retirement plans make up the majority of the marital estate. And while some couples can agree to “each keep their own” in the asset division, other situations require a division of one of the accounts to ensure a fair distribution of marital assets.

 

When division of a retirement asset is required in a divorce, many people are unsure how to proceed. They may have heard the term Qualified Domestic Relations Order (QDRO), but have no idea if or how it applies to their situation. This lack of knowledge often leads to errors that can end up costing them more money in the long run.

 

One way to avoid unnecessary errors is to determine, early on in the divorce process, what type of retirement accounts exist. Once you know what type of accounts are in play, you can assess whether a QDRO – or a different yet similar order – is required. You will also better understand the most effective way to distribute the assets in the final property division settlement.

...
Continue reading
Hits: 90 0 Comments

Posted by on in Common QDRO Mistakes

With retirement accounts making up the majority of assets for many married couples, it is not surprising that these assets need to be divided in a divorce. This is especially true in long-term marriages, where the value of these accounts can be in the six or seven figures.

 

However, dividing the accounts effectively often presents a stumbling block in the divorce process. Much post-divorce litigation involves mistakes contained in Qualified Domestic Relations Orders (QDROs). These mistakes are often not discovered until the alternate payee seeks out their share of the plan participant’s account.

 

However, QDROs do not need to be difficult. A bit of education and relying on the services of a QDRO expert can help avoid some of these most common QDRO mistakes.

...
Continue reading
Hits: 105 0 Comments

In today’s world, the majority of divorces include defined contribution plan like a 401K. However, for some divorcing couples, they will have to deal with division of a less-quantifiable pension plan.

 

Although rarer than a defined contribution plan, pension plans remain a popular option for some employers offering retirement benefits. A pension provides cash flow to the recipient upon retirement. Employees do not generally make contributions to such plans. Instead, the employer funds the benefits, and the employee receives a regular distribution (usually monthly) upon retirement.

 

When a couple divorces and a pension plan is part of the marital estate, the pension may be subject to division as part of the property split. However, it is not easy to put a finite value on a pension plan.

...
Continue reading
Hits: 110 0 Comments

Unless you find yourself in the midst of a divorce with division of a retirement asset on your plate, you probably have never heard of (or cared about) a Qualified Domestic Relations Order (QDRO). Dividing retirement accounts isn’t as simple as allocating the household furnishings. These federally-controlled accounts usually require a separate legal document to make a division happen.

 

This is when a QDRO comes in. Understanding the process of obtaining a QDRO will take much of the mystery and confusion out of the process.

 

Step 1 – Determine that a QDRO is required.

...
Continue reading
Hits: 67 0 Comments

Posted by on in Common QDRO Mistakes

If you’re going through a divorce and have a complicated property division that includes retirement account division, it is easy to let things slip through the cracks. But losing sight of the forest for the trees often comes with unintended consequences.

 

One area where mistakes often happen is dividing retirement accounts. And, in some cases, the mistake comes from a failure to notify the plan administrator of the proceedings.

 

Some plans require a legal document called a Joinder before they will implement any Qualified Domestic Relations Order (QDRO). A joinder is a legal document that is served on the Plan once it is known the Plan will be subject to division. The Joinder notifies the plan that a former spouse is claiming a right to some of the Plan benefits.

...
Continue reading
Hits: 117 0 Comments

If you are going through a costly divorce, receiving a lump sum of cash when things are finalized is often a welcome relief – and a pressing need. Attorney fees, outstanding debts or a down payment on a new home are all things that come to mind as necessities at this trying time.

 

And for anyone expecting a share of their former spouse’s retirement plan, receiving that resource all at once is quite appealing. In fact, “can I get a lump sum distribution?” is one of the questions I’m most often asked when preparing the Qualified Domestic Relations Order (QDRO).

 

The answer I always give is, “It depends.”

...
Continue reading
Hits: 131 0 Comments

Posted by on in Common QDRO Mistakes

When it comes to dividing the marital estate in divorce proceedings, the starting point is often to tally up all the assets and divide everything down the middle. However, when retirement accounts are involved, a simple division among the parties is not always the best approach.

 

While there are circumstances that warrant an official court-ordered division of retirement assets, often times the complexity of Qualified Domestic Relations Orders can be avoided by a creative allocation of all existing marital assets. In some divorces, attempting to divide retirement accounts via QDRO can result in significant post-judgment litigation.

 

To avoid the necessity of protracted court proceedings, a careful evaluation of all existing assets – with an eye toward their current market value – can provide clarity when it comes to the final agreements as to who gets what. While you don’t necessarily want to trade future retirement benefits for current cash accounts (since their current market values can be significantly different), that is not always the case when both parties hold retirement assets with similar values. Often times it is more straightforward – and provides both sides with comforting finality – to simply allow each party to maintain their own accounts and offset any minimal differences in other ways.

...
Continue reading
Hits: 207 0 Comments

A Qualified Domestic Relations Order (QDRO) is one of the key legal documents of divorce for dividing up retirement benefits. But what is being divided is not always future retirement assets. Sometimes, one spouse is receiving disability benefits and those benefits may also be divisible via QDRO during a divorce.

 

However, as one ex-spouse learned too late, receiving a portion of her ex’s tax-free disability payments opened her up to tax obligations to Uncle Sam. Read more about this unusual – but certainly not unique - situation here.

 

...
Continue reading
Hits: 171 0 Comments